"A preference toward higher-quality stocks has been one of our overriding investment themes over the past few years," writes Brian Belski, chief investment strategist at BMO Capital Markets. "We continue to believe that companies with stronger balance sheets, liquidity characteristics and consistent earnings growth are better positioned to deliver outperformance for longer periods of time - particularly as market and business cycles mature.

"Admittedly, this has been a somewhat mediocre strategy over the past year or so as lower quality stocks have been significantly outperforming. However, we believe the market is entering a period that puts low-quality strategies at a disadvantage."

Fundamentals support high quality stocks, writes Belski. And he argues that we will see "increased volatility" in the stock market right through this year. And low quality stocks underperform when volatility occurs. Looking at low quality stocks in every period since 1990 where the VIX moved from a trough to 20, they returned 4.5%, compared with 9.89% for high quality stocks. "Quality has overtaken momentum again," writes Belski.

Hedge funds are shorting small cap stocks which offered the best returns during the bull market, reports Alexis Xydias at Bloomberg. "Large speculators such as hedge funds are betting $2.8 billion this month that the Russell 2000 Index will fall. That's the most since 2012 and the highest versus average levels since 2004, according to data compiled by Bloomberg and Bank of America Corp," reports Xydias. Small cap stocks have got very expensive, with the Russell 2000 reaching a valuation that's the highest since 2005.

Economist Nouriel Roubini thinks that as global tail risks go, the most important one for the moment stems from Ukraine. In an interview with Bloomberg TV, Roubini said that this "is the beginning now of a new cold war between the West and Russia, and this cold war could actually become a hot war if it's possible Russia were to effectively destabilize and invade the eastern provinces of Ukraine, in which case things would escalate."

"You could have another episode of global risk aversion. If this were to become a real war, (inaudible) even a situation in which the supply of gas to Europe may be cut off from Russia. The European economy is barely now recovering from a recession. That could tip back the eurozone into a recession."

About 60% of S&P 500 companies have announced Q1 financial results. And over 61% of those U.S. companies that have reported, have beaten expectations. But there's another key thing to note from this quarter's earnings announcements. "For ten quarters in a row, companies have been unwilling to offer up anything positive about their forward business projections," writes Charles Schwab's Liz Ann Sonders. "We have seen a "negative guidance spread" (more companies lowering guidance than raising it) in each of the past ten earnings seasons."

"This season, though, the guidance spread has finally flipped positive, with the percentage of companies raising guidance outnumbering the percentage of companies lowering guidance by 2.3 points, as you can see in the chart below."